Heading into 2021 there was always risk identified in energy markets well before the industry’s crisis-hit news headlines.
What wasn’t so clear? Prices for gas and electricity would more than double to reach record levels less than 10 months later and we would see the most significant change to the supplier landscape ever. More energy suppliers collapsed from Aug-21 to Nov-21 than in all previous years combined.
Energy Supply Risk & Costs
You or your business may be one of the nearly 4 million customers impacted by the 25 energy suppliers that have collapsed over the past year.
Customers can be either domestic residences, or businesses – running from small to large enterprises. The category you fall into determines the options open to you if your supplier is running into trouble.
Suppliers usually arrange a ‘trade sale’ themselves if they are leaving the market in order to recoup costs. If the situation is forced upon them then the industry regulator Ofgem(The Office for Gas and Electricity Markets) Oversees, ‘The Supplier of Last Resort’ (SoLR) process identifies another supplier to take onboard the customer book of said failed supplier.
SoLR is the usual route but if it is not a feasible option then the Government can be brought in to serve an Energy Supply Company Administration Order. For example, Bulb Energy has been issued a Special Administration Regime as they were close to going into administration. This Regime protects the 1.7 million customers on their books and the company has been effectively nationalised for the time being. Every other impacted domestic user has experienced an uncertain period while their contract is passed through Ofgem’s SoLR process.
A perfect storm of rising demand for energy, coming out of lockdown, reduced renewable electricity production along with, historically low gas reserves, outages at key transmission hubs, and the much-maligned Ofgem Price Cap. This has all contributed to UK energy costs rising upwards for over a year, with a record-breaking surge in September.
Energy suppliers must continually buy and sell energy to meet the requirements of their customers, and when day-to-day price changes are 150-440% higher year-on-year this means their costs will spiral, with many unable to meet these costs. The price cap also protects domestic customers from these large increases. However, this ultimately means some energy suppliers make a loss on each new domestic customer as market levels are well above the cap – contributing to the aforementioned company collapsing.
You may or may not use an energy consultant to help navigate the industry’s idiosyncrasies, but a proactive approach to risk management should always be taken.
By tracking credit and payment terms with ELEXON, it is possible to identify companies that are potentially struggling or maybe in further jeopardy.
If any industry payments have been missed or extensions requested. These are red flags and precursors to changing suppliers where feasible, as customers of a failed supplier can lose their contracts and contractual rates and with markets currently at record levels, new contracts are very likely to be significantly more expensive.
What Happens if my Supplier Collapses?
If your current energy supplier has collapsed, it is a waiting game initially.
We would always advise taking a meter reading, sitting tight, and don’t start to switch suppliers unless that is inflight already. If you had already arranged a change before the news hit that will continue to go through as planned, and a meter reading will give a stop/start for old and new bills, so note the date as well when taking it.
Ofgem will appoint the new supplier through the SoLR process, so you do not need to do anything just yet. Your supply will not be cut off or disrupted and you should see no change really until the new supplier takes over and reaches out to you, which can take up to a fortnight.
Any domestic credit balances are protected by the regulator’s Safety Net, but business energy balances are not. Here is where the meter reading will help, with an accurate final bill. Likewise, any debt will usually pass over to the new supplier to collect and we’re sure they’ll be in touch to help you pay it off.
Your new supplier…
When your new supplier gets in touch, they will let you know what tariffs and rates you can be placed on – as you will automatically lose the contract you were on before with your previous supplier and then be placed on new ‘deemed rates’ which may not be the best option as they aren’t the cheapest prices available. If they do not offer these straight away, ask!
These deemed rates are more expensive than longer-term fixed contracts as it is riskier to the supplier who must buy energy to pass to you. The good thing, however, is that you are not tied to these and can get a new contract with that supplier or indeed another.
Now you can switch if you want to without the fear of exit fees or impacting the SoLR process (which can take 21-28 days) or take a new contract from the appointed supplier. The choice is yours, but if you are unsure of material impacts your energy consultant can provide budgeting forecasts and costings analysis, as well as switching and contract advice.
With markets at record highs it is advisable to avoid punitive charges, but make astute decisions based on the information available for different contract types and lengths.
Loss of Service?
We have already stated that your energy supply, gas and/or electric, will not be impacted. However, you may lose portal or online login access to your failed energy supplier’s service. You information (billing, meter reads, consumption, etc) will be securely stored and passed to the new supplier.
Depending on where you place your next contract, this supplier should give you similar services that you were used to.
We can help answer some questions you may have, for more information contact the DB Energy Team
Also, Citizens Advice offers free, independent advice about business energy contracts and your rights in England and Wales. In Scotland, Advice Direct Scotland can help.